A Mexican Standoff In Buenos Aires

The three-way confrontation involving Argentina, the International Monetary Fund, and holders of defaulted Argentine bonds is getting worse. On Feb. 7, the Group of Seven Finance Ministers urged Argentina to negotiate in good faith with the bondholders, who are furious at Buenos Aires' demand that they accept a 75% haircut on their investment. The IMF, in turn, may not give Argentina a favorable review of its public finances if bondholders don't get an acceptable deal. In retaliation, Argentine President Néstor Kirchner threatens to withhold a $3.1 billion payment on an IMF loan that's due on Mar. 9. Kirchner wants a clean review from the IMF and a free hand to pay bondholders the minimum. The IMF is likely to back down, leaving the bondholders, who hold paper with a face value of $90 billion, out in the cold.

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